When I was five years old, we had a house fire. It was a pretty decent sized one, that started in the basement and burned through the kitchen floor before being put out. Thankfully, my family escaped unharmed, except for our pets (sadly). The house sustained major damage though, as did nearly all of our furnishings – if not due to fire, than due to smoke.

The fire was caused by fumes from turpentine that had been used to polish some wood that night, which made their way under the hot water heater and ignited when that went on.

My father was smart enough to have had a really solid insurance policy. This was in part due to the fact that his parent’s house had been struck by lightning when he was growing up, and they had a minor fire.

So in just one lifetime, my dad had been through two house fires, both caused by extremely rare situations.

He also practiced personal injury law for a few decades, and saw firsthand, hundreds of times, what happens when you have an automobile accident and aren’t sufficiently covered.

Not surprisingly then, I’ve always heavily insured nearly everything in my life. It amazes me that some people don’t have renters insurance, considering how cheap it is. Mine has averaged about $10 a month!

Last month, when my wife and I hired movers for our apartment to house move, I noticed on the contract that the standard insurance during a move is $0.60 per pound. So say a $2000 computer gets dropped and broken. That computer would only be insured for about $40! Pretty pathetic. Instead, we opted to pay an additional $80 which would cover us for up to $10,000 of damages based on the actual value of the item.

We recently got homeowners insurance, and also got pretty much the maximum coverage we could get there as well. The only exception is with the deductible, as sometimes a lower deductible can really increase costs, and you may not even want to make a claim for a few hundred when there’s a good chance it will increase your premium anyway.

It was a bit challenging to find quotes for homeowners insurance, as there are so many options out there. In the end we went with a local, word of mouth recommendation, but you can also check here for free insurance quotes online.

My wife and I started looking for houses over one year ago. Initially, it was fairly informal, just looking at information online. I mostly stuck to Zillow.com and a few local realtor sites. Then one of my coworkers, who was also looking for a house, mentioned Redfin.com. An odd name, I thought, but worth checking out.

I was really impressed with their online interface. Zillow gave a good amount of information but was frustratingly slow. Redfin was fast, gave lots of good info, and was easy to filter. So I started using it more and more, including to scout out open houses.

After a few months of open houses, we decided to get more serious about finding a house. I considered using Redfin, but I was hesitant: Surely they couldn’t provide as good service as a “real” broker could, right? My wife and I both knew pretty much exactly what we wanted, and spend most of our lives on the internet anyway, but we still thought we might miss something by not using a traditional broker. Boy were we wrong.

We called a broker we met at an open house, and started looking at houses with her. It was a big disappointment. We wasted time at a lot of terrible houses, and felt extremely pressured towards certain ones. She would also say things like “Well if this is the house you want I would make an offer above the listed price just to make sure because it’s going to go quick”, and then I’d notice 6 months later the house went for 15% below its listed price.

Part of the problem was that this broker just didn’t seem to understand what we wanted. I was getting daily emails from Redfin with new houses, which I’d look at before work in the morning, usually dismissing all of them. And yet later that week I’d get an email from our broker excited about the exact same houses I had quickly dismissed.

After a few months, we decided to “break up” with our realtor and give Redfin a try. I placed a request to see a house we had wanted to look at that went off the market, but had just come back on. Literally five minutes after I placed the request, I received a call from the local Redfin tour coordinator, and we scheduled a tour in two days. I was very impressed with how prompt they were.

On our second trip out with Redfin, we found a house that we decided to place an offer on. Filling out the offer form on the website was a bit nerve-wracking, partially because they ask you how much you want to offer – something that is normally suggested to you by your agent. Redfin did provide good tools and guides on their website though for determining a good offer price though. We heard back fairly quick from Hannah, one of the main Redfin Boston agents.

The experience of putting together the offer went pretty smoothly, though I did feel like I could have used a little more guidance when it came to the offer price … I almost felt as though Redfin wasn’t allowed to suggest a price, though I don’t think that is the case.

In the end, this particular house fell through due to a terrible inspection.

Over the next few months, we worked with Madeline, an excellent Redfin tour agent. We loved that she never ever pressured us towards liking a house, and always gave her honest opinion when we asked.

Then one day late last summer we found our house, and gave Hannah a call on the way from the house. That night Hannah put together a comparative market analysis on the house and the next day helped us put together an offer. We received a much higher counter-offer, but this time Hannah gave us some very specific advice on how to respond which was very helpful.

We gave Redfin a thorough testing over the next few months. While our inspection went fairly smoothly, we did need to have a few contractors look at some issues that came up. Hannah was great at recommending people for the job, and also took care of making sure a Redfin agent would be present when the contractor showed up.

Then we had an issue with the appraisal, which was a nightmare in many respects, but Hannah and Redfin were there the whole time for us.

I think my only criticism of Redfin is that they only have three closing agents for all of Boston, and I often felt as though Hannah was overworked. For example, she seemed to be at a closing nearly half the days I called her! She did always get back to me the same day though. More importantly, she took as much time as was needed to explain things and help calm my frayed nerves.

I also got the feeling Hannah was a really good agent – she seemed to know a lot about the business. For example, when I mentioned we’d be using the bank’s attorney for our closing, she strongly recommended against it and gave me a list of lawyers. We went ahead with the bank’s attorney anyway and regretted it immediately. So we hired one of the lawyers Hannah recommended, who ended up being fantastic, and was absolutely essential when we ran into issues with the purchase & sale agreement and appraisal.

We finally closed, which funnily enough was the first time we met Hannah in person. Then 10 days later, as promised, we received a check for over $4,000 from Redfin. I mention the specific number because I want people to know that you do actually get a non-taxable check from Redfin for the amount they tell you you’ll receive. We actually got paid to buy a house!

One note though on that commission refund: I mentioned earlier a house we put an offer on that fell through. The refund shown on that house’s detail page on Redfin showed a refun around $4,000, but after we placed the offer the fine print showed the refund for that house would have only been around $2200. This is because that house’s commission was 2%, while the one we purchased was 2.5%. Apparently Redfin bases their refund approximation, shown on a house’s detail page, on 2.5% even when that same page lists it as 2%. This seemed a little bit unfair, but since we did end up with a house with a 2.5% commission I was of course less bothered.

In the end, I wholeheartedly recommend Redfin to anyone who feels as though they have a good idea of what they want from a house, and who doesn’t mind spending time on the internet searching out houses.

Now that the check has cleared, I can even say that I would have gladly used Redfin even without the commission refund!

I’ll assume that if you made it this far (this far being part one, which I suppose is really not that far at all), you’ve decided you want to buy a house. I’ll assume that you are buying a house for a good reason, and not just because you want to grill with your bro’s.

On that note, a quick tangent. I suppose I shouldn’t be going on tangents in the first paragraph of the first article on this subject, but this is important. I highly recommend you watch shows like House Hunters and Property Virgins so you can take notes of exactly why not to purchase (or avoid) a house. For example, is there horrific wallpaper in a bedroom? Guess what – you can strip it off! Don’t like the ceiling fan in the family room? It can be changed! Choosing which house to buy based mainly on the size of the margarita bar in the kitchen? Probably not such a great idea.

We’ll get more into the details of what to look for in a house later, but before that it’s important that you figure out if you can actually afford a house. In order to do that, you first need to understand the costs of owning a home.

It is absolutely, positively imperative that you calculate exactly how much all of the various parts of owning a home will cost you, and then decide 1) if you can afford a home at all and 2) what price range you can look at.

Let’s assume you are renting right now. Here are the costs you are concerned with as a renter:

1. Rent
2. Renter’s insurance
3. Heat
4. Electricity
5. Water

Not much, eh? Some of you may only have (1), in which case I insist you get renter’s insurance immediately. It can cost, literally, a few dollars a month. It not only covers, say, your apartment burning down, but it also covers thefts from your person and also injuries that occur to others inside your apartment. Pretty important stuff for a few bucks a month.

Of course not everyone pays utilities when renting. Or you may only pay for electricity but not heat, or vice-versa. Also, some rental units charge for things like parking or a garage, so don’t forget about those if that situation applies to you.

Here are the costs of owning a house:

1. Mortgage
2. Homeowner’s insurance
3. Property taxes
4. Private Mortgage Insurance
5. Repairs
6. Heat
7. Electricity
8. Water

Mortgage

I know the term mortgage will be obvious to most people, but if not: Your mortgage is the big chunk of change you pay each month to the bank (instead of a landlord). Your mortgage payments go towards two things: Interest on the loan you take out to pay for the house, and payment for the house itself. The latter is called your principal. These numbers are always combined when talking about the mortgage.

Fun fact about mortgage payments: Say your mortgage payment is $1500 a month. The first year of owning a house, the vast majority of that payment (we’re talking like $1475) goes just towards paying the interest! So even after a full year of “owning” your house, you actually only have a few hundred dollars worth of house ownership.

Homeowner’s Insurance

Kind of like renter’s insurance, but a lot more money, and a lot more important. Renter’s insurance is important, but if your apartment building burns down, you don’t have to worry about rebuilding it.

Property Taxes

When you own a home, you own the land it’s on, and the land surrounding it as well (this is referred to as your lot). The city that your land is in taxes you for living there. Those taxes go towards various city services, including the school district, which often has a big impact on your taxes. Property taxes usually range from 0.5%-3% of the assessed value of your house, annually. So a $300,000 house taxed at 1% will cost you $3000 per year.

Private Mortgage Insurance

If you are using less than 20% of the home’s purchase price as your downpayment, you will have to pay private mortgage insurance, or PMI. PMI is basically the price you have to pay to the bank in order for them to feel comfortable with you purchasing a house where your actual stake is less than 20%. Once you reach 20% equity in the house, most lenders will remove the PMI.

PMI is usually about 0.8% of your mortgage cost.

Repairs

Unlike an apartment, where your dishwasher breaking means nothing more than a call to the landlord, everything that breaks in your house is your responsibility – and it’s not just the appliances you have to worry about, as you’ll soon be repairing items in your house you didn’t even know existed.

This is a tough one to estimate. One month, your microwave may break, and it’s a quick $75 to replace that. But the next month, you might find out your roof needs replacing for $15,000. I’ve read that, over the lifetime of a house, repairs tend to average about 1-4% of the house’s value per year. While you won’t be paying this cost every month, it’s very important to have this money set aside.

Utilities

Utility costs vary greatly depending on where you live, how big the house is, and the type of system it has. Generally, estimating an increase of about 15% for your electricity bill should be safe, unless your current apartment doesn’t have laundry or a dishwasher. Your heating bill is more difficult to estimate, but you can expect it to increase dramatically. You may not be using electricity in those new rooms you have, but you sure will need to heat them.

Those are all of the major additional expenses you’ll be paying when you own a home. But there are some other expenses to keep in mind as well. For example, are you moving farther from work? Be sure to factor in the additional money you’ll be paying on gas or tolls. Buying a house with a big yard and big driveway? Soon after you move in you’ll need a lawnmower and snow-blower (or snow removal service).

There are also one time costs associated with purchasing a home. Most of these are wrapped up in something called closing costs, which are the sum of the dozen or so fees you pay to banks and lawyers for assisting you with the contractual part of buying a home. You’ll also be paying a home inspector for every house you see, which usually costs between $250-$600. Lastly, if you are hiring movers, you’re looking at around $1000-$2000 in costs there (though that can definitely vary depending on your situation).

There is some good news though. You won’t pay a dime to hire someone to help you look for a house. Instead, your realtor gets paid, in essence, by the seller, who sets aside a commission for both their broker and yours. Of course, in a way you do pay for this, since the seller has to factor that into their costs when deciding on the price to sell their home, but it’s not money directly out of your pocket.

You are now familiar with all of the extra money you’ll be spending after you buy a house. In the next article, we’ll figure out if you can actually afford all of that!

My wife and I first started looking at houses back in October of 2008. We were casual searchers back then, browsing the occasional open house when it looked enticing enough. We couldn’t really have bought a house at that point though since our lease in our apartment didn’t even end until August 2009, but we thought it’d be good to start learning the ropes.

Turns out we didn’t have to worry about buying a house, because of the eighty or so we’ve seen in person, and the several hundred we’ve seen online, only four have interested us. Yet even of those four, none was a sure bet. The latest one was the closest, but it fell through after a dreadful property inspection. We’re currently in the last steps of the inspection process on a house we really love, but I’m not counting any chickens this time.

Buying a house is absolutely one of the biggest financial challenges I’ve faced. There are so many steps to the process, so many places to go wrong and so many places where understanding the process better or having had access to another resource would have helped immensely.

So I decided to dust off the ol’ personal finance blog and write a series of posts on the home buying experience, starting with figuring out if you can afford a home, and ending with (for the time being) closing the deal.

Part 1: Introduction
Part 2: What it Costs to Own a Home

When my wife and I decided to have a baby, I already knew that it was going to be an expensive, but rewarding, venture. The fact that there’s even a nickname for people couples who both have jobs and don’t have a baby (double-income-no-kids) helped clue me into this as well.

But no one ever really told us what made having a child so expensive. Some people mentioned the costs of outfitting the nursery could amount to several thousands of dollars. Looking at catalogues from fancy furniture stores, I could see how this would be the case. Even Walmart furniture seemed expensive. But we are lucky enough to have wonderful family and friends, and will be receiving (or borrowing) the vast majority of our baby related items from them. For the rest, we turned to our old standby, Ikea, whose “Gulliver” crib has glowing reviews on the internet and yet only costs $99, 1/3rd to 1/5th the cost of other cribs we looked at.

Someone else mentioned all the hospital costs, and we’ll get hit with our insurance deductible, but that should be it. A hit to our finances, yes, but nothing major, and just a one time cost.

Diapers? They were always the first thing mentioned with baby costs, because of how many you go through. But I did some searching and found Huggies on Amazon, using subscribe-and-save, for about 15 cents each. And they’ll automatically be delivered once a month.

So where do all those ridiculous costs lie? Daycare.

My wife and I both work full time, and we both really enjoy our jobs. She would probably go crazy being at home all day, and I’m at a point in my career where I’m not ready to work from home. So we’re looking at full time care, 8-5, five days a week. The cost? About $1,400 a month.

Let’s think about that number. $1,400 a month is $16,800 per year. That’s equivalent to having a full time $11/hr job. It’s also roughly equal to a mortage for a $300,000 home. You could lease a pair of Mercedes for the same cost.

Pretty unbelievable when you think about it.

On June 7th, 2007, I wrote a post entitled “A five minute market prediction“. In it, I wrote the following:

“As I mentioned in my previous post, now that I have the opportunity to actually invest a bit of money into the stock market, I am suddenly concerned about whether this is the right time to do it“

This was only about four months into my learning about the market. At that point, the market was flying high. The Dow Jones had gone from 11,000 to 13,500 in about six months.

Now I didn’t know much about the market, but this seemed a little odd to me. So basically, it was normal to put, say, $100,000 into the market, and make $22,000 in a few months? Was this whole investing thing really that easy?

I couldn’t believe that, so I thought why not bring up a graph of the stock market for the past decade or so, and see if there had been similar gains in the past and look at what happened after. Turns out I had stumbled upon the massive field of technical analysis, which is using a system filled with terms like “marubozu” and “Bollinger Bands” that are used to give insight as to where a stock will move next.

Of course I didn’t know about any of those techniques yet, so I did something simpler: I looked for patterns in the graph. And this is what I found (this is the same graph I posted in 2007):

click for a large version

As you can see, I just circled all periods which looked similar to the graph of the past few months. Then I made a simple observation: Every single time there was a gain like we had just experienced, the market either stagnated, or dropped, for several months after.

If only I had listened to my own advice. Because as it turns out, the market stagnated for a few months, and then dropped … by 50%.

Am I a market timing genius? No. Did I just get lucky? Quite possibly. Do people ignore obvious signs of danger in the middle of market euphoria? Absolutely.

Of course, if I were to try to apply this approach in the future, there’d be a few problems. The biggest one being that while those gains to seem to signal temporary changes in the market, they don’t always represent a peak. So there’s had to be some way to know when to get back in.

Still, I can’t help but wonder what it would have been like if I had just listened to my instincts, and passed those feelings along to family and friends who were much more heavily invested.

Hello. We last spoke about four months ago, when I posted a substantial article on how to pick individual stocks, based on what I had learned in just a year or two of practice.

Yeah, remember just a few months ago, when the Dow Jones was at 9000?

I do have to admit that my interest in stock investing has taken a clobbering over the past year. Part of the reason is that Zecco, the broker which offered free stock trades and allowed me to purchase literally just a few shares of stock to trade with, changed their requirements from a cash balance of $2,500 to $25,000. Ouch.

But a bigger part of the reason is that in a market like this, I just don’t see a point in picking stocks – unless you’re shorting them. Every time I loaded up the Wordpress admin page to write a new post, I’d get a few sentences in before I would just give up.

Meanwhile, the past half year has introduced some new challenges into my personal finance life. My wife has finally found a job she is very happy in, meaning we now both have steady income streams to manage. We’re expecting a child in just two months, and after “congratulations” most people immediately bring up the cost of having a child. We’re also beginning the long process of buying a house.

So I thought I’d brush off the digital dust from this site and try writing a few posts. I made a few small updates as well, like removing the goals meters and investing widget from the sidebar, as well as a few more personal posts, as I’d like to take down the drape of anonymity I wrote this blog under.

I am humbled to have my previous post, How to Pick Stocks in Five Steps, chosen as a editor’s choice in this week’s Carnival of Personal Finance, hosted over at The Suns Financial Diary. Check out the rest of the excellent entries here.